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September 09, 2007

Patent "Reform" Bill Passes House of Representatives

On Friday, the U.S. House of Representatives passed H.R. 1908, a bill intended to
"reform" U.S. patent law. Pushed by special interests (mostly in the
IT arena) frustrated by the proliferation of patent rights over the
past twenty-five years, the bill would fundamentally change U.S. patent
law. Whether "reform" is needed or not, this bill constitutes more
overhaul than reform, and is unlikely to better improve U.S. technology
or inventors; sole inventors and universities are the parties most
likely to be harmed.

The scope of the bill is sufficiently all-encompassing that a thorough analysis must wait until Patent Docs
has had a chance to review it more completely. However, there are a
few highlights (or lowlights) that can be immediately gleaned from a
cursory review. These include:

1. Section 102 has been replaced by a novelty section providing for
a first-to-file system, where a patent filing can more easily be made
in the name of the "real party in interest" (i.e., an assignee
or someone that the inventor owes a duty to disclose). First-to-file
does not include acts of derivation, where the first to file derives
the invention from the true inventor. The provisions also retain the
one-year grace period for disclosure, publication, public use, or sale
by the inventor. Section 103 is changed to specify the effective
filing date, rather than the date of invention, for determining
obviousness. Section 104, relating to inventions made abroad, is
repealed in its entirety. These provisions will not be implemented,
however, until the President provides an Executive Order finding that
Europe and Japan have enacted a one-year grace period for disclosure,
public use, or sale of an invention by the inventor or real party in
interest.

2. Interference proceedings are abolished, replaced by actions to
show derivation of an invention from the "true" inventor. A floor
amendment to the bill by Congressman Conyers of Michigan preserved the
right to an interference for any patent application filed before the
effective date of the amendment.

3. A post-grant opposition proceeding is created, requiring that a
petition to cancel claims of a granted patent be filed within one year
of the patent grant date. The Director is also given the power to sua sponte
institute a cancellation proceeding. As with current re-examination
practice, the Director's decision to grant or refuse a cancellation
proceeding cannot be appealed. Moreover, a third party who fails to
invalidate a patent in a civil action cannot provoke a cancellation
proceeding against that patent, and repetitive petitions by the same
party against the same patent are also prohibited. Sanctions are
available for abuses of these provisions. A cancellation proceeding
can be initiated on the basis of art that had been cited or considered
during prosecution (i.e., eliminating the current reexamination
standard that a new question of patentability be supported by the
assertion of new art not considered during prosecution). A floor
amendment to the bill by Congressman Conyers of Michigan preserved the
right of a patentee to pursue infringement actions despite concurrent
cancellation proceedings, and precludes the use of the existence of a
cancellation proceeding as evidence of invalidity or unenforceability
in any civil action or before the ITC. These provisions take effect
one year after the bill becomes law.

4. Derivation proceedings, appeals, and cancellation proceedings
are to be held before the Patent Trial and Appeal Board, which replaces
the Board of Patent Appeals and Interferences.

5. Available damages (where actual damages are not established) are
limited to a reasonable royalty depending on the "economic value
properly attributable to the patent's specific contribution over the
prior art." Damages are not to be determined from the "entire market
value" of sales of the infringing article, but a court (or jury) can
consider the terms of any non-exclusive licensing of the patents. A
patentee can provide evidence of additional value for combination
inventions where the components of the combination are in the prior art.

6. Willful infringement can be found only when the infringer was
put on notice in writing by the patentee. The notice must raise a
reasonable apprehension of suit in the accused infringer, and set forth
with specificity how the allegedly infringing article infringes each
claim of the patent asserted by the patentee. Frank copying, or
persisting in the infringing activity after a court determines
infringement, are also grounds for finding willful infringement.
Willful infringement cannot be found where the infringer has "an
informed good faith belief that the patent was invalid or
unenforceable, or would not be infringed by the conduct later shown to
constitute infringement of the patent." Such a belief can be
established by an opinion of counsel or behavior directed at avoiding
infringement. Willfulness cannot be plead (and presumably, not
expressed to a jury) until after the court finds infringement.

7. The opportunity for third parties to submit art and other information during ex parte examination is expanded.

8. The prior inventor defense is expanded to no longer be limited to business method patents.

10. Venue rules are made more limited, requiring venue to be where
the defendant is incorporated or has its principle place of business,
or has committed "a substantial portion of the acts of infringement"
and has "an established physical facility."

11. Interlocutory appeals regarding claim construction are created,
at the discretion of the trial court but not the Federal Circuit.

12. The provisions of the bill also authorize the Patent and
Trademark Office to require information from applicants including
search reports and other information relating to patentability
searches. These requirements do not apply to "microentities," which
encompass traditional small entities but do not include parties named
on more than 5 patents or applications, or that have more than 2.5
times the median household taxable income.

13. Inequitable conduct is defined by statute and requires findings
of materiality and intent, but the provisions of this section do not
immunize applicants or their attorneys from liability attendant to
filing search reports or patentability reports.

14. The bill also authorizes retroactively the actions recently
taken by the Patent Office with regard to the continuation rules by
expanding the Director's rulemaking authority under Section 2.
However, a floor amendment by Mr. Issa of California provided for a
stay of any such regulations for 60 days to permit Congress time to
disapprove such regulations.

15. Violation of the best mode requirement is no longer grounds for invalidating a patent.

The vote in the House was 220-175, with Democrats voting 160-58 and
Republicans voting 60-117. There are significant differences with the
Senate version of the bill, which may come to a vote in the next few
weeks. The Bush administration opposes certain provisions of the House
version as well, and the political considerations make it unlikely that
the bill as passed in the House will be the final version of any bill
signed into law by the President. Those considerations are but cold
comfort to those who view many of these provisions with disapproval or
despair, since they appear to significantly decrease the advantages
U.S. patent law has provided for over a generation, to solve alleged
problems many believe exist only for certain special interest groups.

Patent Docs will provide a more detailed analysis of the rules over the next several days.